Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
Tether was launched in July of 2014 under the name RealCoin, but changed its name to Tether in November later that year.
Tether consists of a blockchain-enabled platform that facilitates using cryptocurrencies pegged to traditional or fiat currencies, which are often known as “stablecoins” due to their inherent stability versus their fiat counterparts. This structure also allows for fiat currency equivalent cryptocurrencies to be used like other digital currencies.
This project’s open-source software interfaces with blockchains to provide a platform for issuing and redeeming stable cryptocurrency tokens known as “tethers”. One example is the USD₮ cryptocurrency that is pegged to the U.S. dollar in a one to one ratio using fiat currency reserves as backing for the digital token. The equivalent tether coin for the euro is EUR₮, which is pegged to the euro at a one to one ratio also.
This setup allows users to make transactions using fiat currency equivalents without experiencing the inherent volatility and other challenges often associated with unpegged and unbacked cryptocurrencies. Another benefit to tether’s stable coins is that they can boost the efficiency of making cross-border payments via the secure, quick and inexpensive blockchain technology.
Tethers use Ethereum’s blockchain technology with the Omni Layer protocol, and they therefore exist as ERC20 tokens that can be transmitted to any Ethereum address. This also means tethers can be used in Ethereum decentralised applications and smart contracts.
The currencies existing on Tether’s platform are backed 100 percent (or more) by fiat currency reserves placed in banks by Tether Limited, the company responsible for managing those reserves. Tethers can be redeemed and exchanged for fiat currency under Tether’s service terms, although Tether Ltd. pointedly does not guarantee any right of redemption or the ability to exchange Tether tokens for fiat currency.
Tether provides a transparency page with daily updates showing the number of tethers in circulation for USD₮ and EUR₮. The reserve value of each currency held against the tether coins, which are U.S. dollars and euros respectively, can also be seen.
Tether can be obtained via two different transport protocols, specifically Ethereum and Bitcoin. Therefore, users need to check the destination address carefully when sending tether coins to other addresses and make sure to choose either the Bitcoin or Ethereum format, as appropriate.
Rather than using a cryptocurrency exchange for transaction purposes, it is typically more secure to go through one of the regulated online brokerfirms that allow transactions in tether’s digital currencies.
Virtually any activity taking place over the Internet has scams to beware of. Be especially cautious of firms asking for a start-up fee to exchange tether tokens for money, especially since tether tokens can be redeemed for their pegged fiat currency.
Also remain skeptical of investment schemes that claim the value of assets can be quickly increased, since that is rarely the case. Additional scams to be vigilant for include fake crypt exchanges and cloud mining operations.
Another trick to watch out for that is commonly attempted via social media and email is phishing. This typically involves a scammer impersonating a known brand to obtain currency wallet access, so avoid making financial arrangements using direct messages or clicking on links from such messages to provide personal information.
When it comes to cryptocurrency exchanges, they have historically been at the risk of being hacked. A classic example was Mt. Gox, one of the biggest bitcoin exchanges that lost 850,000 bitcoins in a reported 2014 hacking incident. Without client fund protection, most of that exchange’s clients still have not gotten their coins back. And while creditors will probably receive fiat currency compensation for their lost coins at low 2014 prices, they will lose out on the more recent dramatic appreciation of bitcoins that they could have profited from.
If possible, it therefore makes sense to choose a regulated broker to obtain any tether or other cryptocurrency tokens through. AvaTrade is an example of a regulated broker that is based in Ireland and therefore subject to following strict EU regulations. It also happens to be a subsidiary of a larger company with a market capitalisation of $17 billion. Another example is eToro, which is also based and regulated in Europe under the Markets in Financial Instruments Directive (MiFID).
In general, regulated brokers provide greater security and peace of mind for cryptocurrency investors and traders. The process of making transactions in tether tokens via these brokers is quite straightforward.
This platform is suitable for traders of varying experience levels and it can be used on the web or downloaded to desktops, tablets or smartphones. MT4 also offers a customisable interface with advanced charting functionality that allows traders to perform technical analysis on the market. AvaTrade also has a straightforward account sign up process and lets traders make transactions in thousands of additional assets besides cryptocurrencies like tether.
The value of tether is quite stable relative to its pegged currency, so it tends not to fluctuate very much. It does however enable traders to move from one volatile cryptocurrency like bitcoin to another pegged one like USD₮ or EUR₮. This allows traders to stabilise the value of their token holdings relative to a major fiat currency without having to actually hold fiat currency.
Even though USD₮ and EUR₮ are quite stable relative to their pegged currencies, all crypto currency trades have associated risks. Despite those pegs, the price of tether coins can rise and fall depending on various factors.
Tether coins are designed to be especially stable digital currencies relative to their pegged fiat currency. This is done by holding fiat currency reserves greater than or equal to the amount of outstanding tether coins. Tether coins are therefore not generally used for investment or trading purposes, but more often for transaction purposes.
Their stability also means that the usual principles of how supply and demand affect price do not really operate in the market for tether coins. Nevertheless, while the value of the USD₮ coin is quite stable in U.S. dollar terms, it can rise and fall relative to the EU’s euro, for example, as the EUR/USD exchange rate fluctuates.
Furthermore, due to its fiat currency reserve backing, Tether coins are less susceptible to government regulation issues affecting its value, although persons based in some jurisdictions cannot use the Tether platform. These include residents of Cuba, North Korea, Iran, Syria, Pakistan, Venezuela and Crimea.
In addition, U.S. persons cannot use the Tether platform unless they are Eligible Contract Participants (ECPs) which includes corporations with total assets over $10,000,000 that are incorporated outside of the United States and its territories. Tether coins can also be subject to scrutiny and even litigation over the value and security of their currencies’ bank reserves and the assets used to back the digital currencies.
That being said, a controversy arose over the fact that while Tether coins were supposed to be backed by one unit of fiat currency, that was changed on March 14, 2019. On this date, security of the coin was changed to also include loans made to affiliated firms, like the Bitfinex exchange, which is also owned by Tether’s Hong Kong based parent iFinex Inc. and which Tether coins trade on.
The New York Attorney General also filed a lawsuit in 2019 claiming this switch was done to cover up $850 million dollars in funds that had allegedly been missing from Tether’s reserve accounts since mid-2018.
Chart of Tether’s USD₮ token in U.S. dollars and bitcoins (BTC) over its full trading period from March 2015 until July 7th, 2019 including market cap and daily volume data. Source: CoinMarketCap.
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